Q1 2022 Manitowoc Company Inc Earnings Call

May 4, 2022

Excluding these orders in the first quarter would have been slightly better than 500 million, which I always use is a good measuring stick for a bull market.

Our sales for the quarter were just shy of $460 million. This was a $100 million improvement year over year, but unfortunately, it was approximately $35 million short of our internal forecasts.

Our backlog is strong remaining above $1 billion.

Operationally the team did a great job of battling part shortages, while maintaining productivity managing rising prices for purchased materials and dealing with higher shipping costs to deliver $31 million and adjusted EBITDA, while the year over year adjusted EBITDA margin was significantly lower than our normal expectations.

Six 8% was a very respectable performance considering all the headwinds.

As it relates to our progress on cranes, plus 50, we grew non new machine sales by approximately 20% year over year. Our recent acquisitions combined with our four strategic initiatives have given us good momentum in the early stages of our journey to grow our non new machine sales by 50% over the.

Next five years.

Currently we continue to make progress on our sustainability commitments fueled by the Manitowoc way recently, our team deployed a new methodology that leverages value stream mapping to help us identify kaizen opportunities to reduce our energy consumption.

In addition, the team has used <unk> to improve our energy efficiency.

For example at one factory the team is performing regular gamma walks to identify and eliminate <unk>.

Impressed there as one of the biggest energy consumers in a factory.

Another one of our opportunities to improve sustainability is to eliminate landfill waste.

In the first quarter, we made considerable improvements against our internal targets by implementing line side recycling and our factories working with suppliers to reduce packaging material and partnering with waste contractors to improve recycling programs. This is a good example of the old adage, what gets measured gets improved and it is exactly the type of the.

Haters that embody the Manitowoc way culture.

Turning to our acquisitions I am extremely pleased with where we stand there for the first six months. Our integration plans are completed the financial performance has been in line with our expectations and the leaders have started to participate in a regular operational review process, while they haven't fully adopted priority deployment, we are well down the path of identifying priority.

And finding new ways to grow our non new machine sales while tracking kpis.

With that I would like to introduce our new CFO , Brian Regan, Brian would you. Please walk us through the details of our first quarter financial results.

Thanks, Erin and good morning, everyone I'm excited to be here with you today. It is an honor to be named CFO of the company with such a long history in the lifting solutions business. David has been a great mentor since I joined the company three years ago, and I look forward to building on his accomplishments as we move forward.

With that let's move to slide four.

Our first quarter orders totaled $482 million, an increase of 2% a.

The year over year increase was driven by growth in the Americas segment inclusive of our acquisitions. This increase helped offset lower orders in our Europe segment, which included both market softening in the cancelled Russian orders previously mentioned by Aaron.

Additionally, foreign currency impacted orders unfavorably by approximately $15 million.

Our March 31 backlog was up $22 million sequentially and unfavorably impacted by approximately $14 million from changes in foreign currency exchange rates.

Net sales in the first quarter of $459 million increased $105 million or.

Or 30% from a year ago.

Year over year increase was driven by the strong backlog entering the year, primarily in the Americas and Europe regions. However, revenue continues to be negatively impacted by supply chain constraints, resulting in shipments shifting to the right.

Year over year benefit from incremental sales associated with our acquisitions amounted to $31 million in the quarter.

Net sales were also unfavorably impacted by $16 million from changes in foreign currency exchange rates.

SG&A expenses increased by approximately $9 million year over year, which included a $5 million benefit associated from the partial recovery of a note receivable balance in China.

The gross increase in SG&A expenses of $14 million year over year is primarily related to our acquisitions.

Our adjusted EBITDA for the first quarter was $31 million.

An increase of approximately 47% year over year.

As a percentage of sales adjusted EBITDA margin was six 8% an improvement of approximately 80 basis points over the prior year, primarily due to leveraging of fixed cost on a higher volume.

Flow through of the incremental revenue for the quarter was approximately 10%, which is lower than our normalized rate mainly due to the price cost dynamic.

First quarter depreciation of $16 million increased $6 million compared to the prior year, which was driven by the acquisitions.

Our provision for income taxes in the quarter was $7 million and associated with the tax on income in non U S jurisdictions.

As a reminder, the company has tax valuation allowances established for certain countries and therefore losses in those countries are not available to offset income tax expense in profitable jurisdictions.

Our GAAP diluted income per share in the quarter was <unk>.

On an adjusted basis diluted income per share was <unk> <unk>.

An improvement of nine from the prior year.

Yes.

Our net working capital year over year increased $92 million of which $70 million relates to the acquisition of.

The remaining increase is attributable to higher throughput in our factories exacerbated by supply chain disruptions and inflation.

Moving to cash flow, we generated $6 million of cash from operating activities in the quarter compared to $41 million in the prior year.

The lower cash flow in the quarter was primarily due to an increase in net working capital mostly related to an increase in accounts receivable.

Capital spending in the quarter amounted to $9 million of which $4 million was investment in our rental fleet.

As a result, our free cash flow in the quarter was a use of $3 million.

We ended the quarter with a cash balance of $52 million, a decrease of $24 million from year end of which $20 million was used to pay down a portion of the outstanding borrowings under our ABL.

Total outstanding borrowings under the ABL was $80 million at the end of the first quarter and total liquidity was $267 million.

As a reminder, we guided to $85 million of Capex for the year of which $25 million was related to growth in the rental fleet and $35 million related to the replacement of rental fleet expected to be sold during the year.

We expect the replacement rental fleet capex to be more dynamic than traditional manufacturing capex due to the dependence on opportunistic sales transactions we.

We continue to assess our investment in Capex and based on current macroeconomic conditions, we anticipate that our spend will be lower than previously stated.

With that I will now turn the call back to Aaron.

Thank you Brian .

Let's move to slide five.

The first quarter reminding me of an old Don Rickles quote struggling is hard because you never know what's at the end of the tunnel.

Three months ago. It looked like the economy was on the mend after two years of Covid. Unfortunately, as we approach the end of the tunnel, we've encountered a new set of challenges first as a consequence of the humanitarian crisis in Ukraine commodity and energy prices have soared and supply chains have become more strained, causing a significant disruption to Europe's economy and.

Our local businesses.

The U S economy is clearly overheated in the federal reserve is playing catch up with interest rate increases and.

And lastly, the severe COVID-19 lockdowns in China are taking its toll on the already stressed global supply chain.

As I previously mentioned, we've begun to see cracks in what has been a very strong crane market. While our orders were good in the first quarter and construction activity was strong confidence is subsiding on.

<unk> sites contractors are experiencing severe difficulty obtaining raw materials and labor, causing projects to be delayed.

Crane rental houses they are having difficulty finding operators and skilled technicians.

And of course Crane manufacturers are struggling to hit delivery dates and continue to extend lead times.

For example, we lost six days of production in China in two weeks and the yellow Italy in April .

Throw in double digit price increases by manufacturers and a growing interest rate environment and I fear that confidence is beginning to wane, particularly in Europe and North America.

Spring purchasing is normally a good indicator of clean orders for the year end.

In March and April orders trended down at the same time that we implemented our last round of price increases.

Looking at the traditional western markets, we see some pockets of strength in North America, and Europe , but generally these markets appear to be losing steam.

In places like Florida, where construction is booming and in Italy, where the market is supported by strong tax benefits. The crane business is robust.

However, in spite of strong oil prices the oil patch in the U S Gulf region remains completely muted.

In North America, and Europe , where everyone has been raising prices for the last 12 months.

Rental rates have been stagnant.

The situation is further exacerbated by the fact that production slots in 2022 are close to being sold out leaving everyone wondering how high interest rates and prices will be in 2023.

Finally, with regard to our dealer inventories were closely tracking the speed at which these cranes will be retailed over the next six months.

Dealer inventories are currently okay, but based on our backlog are going to be replenished at a pretty good clip over the next couple of quarters. This is traditionally where we see the first signs of a downturn.

Taking a look at other markets there is quite a hodgepodge the traditional mining markets like South America, and Australia are performing well.

And our outlook for the Middle East has significantly improved our recently visited Saudi Arabia, and I was very encouraged by the level of investment activity. The recovery is quickly building in Saudi and all indications suggest that Qatar and Kuwait will likely follow in the coming quarters.

In Asia Pac the story remains unchanged.

China's construction market is still dormant in the recent hard COVID-19 lockdowns across the country have only contributed to the problem.

South Korea, However remains a bright spot and we are beginning to see green shoots in Vietnam and Singapore.

Lastly, regarding Russia, let me be clear Manitowoc vehemently inflows as Russia's aggression against Ukraine, and we are deeply saddened by the tragic events that continue to occur we have approximately 20 employees, which includes Russians and non Russians. Our primary focus is to support our Manitowoc family and we will continue to do so we've.

<unk> funds to support the urgent and long term needs of Ukraine from.

From a business standpoint shortly after the conflict began we stopped accepting new business. We have subsequently canceled all orders not in trends and we continue to evaluate the potential financial implications related to this entity.

Looking at our 2022 outlook, given our backlog and the dynamic nature of the current environment, we are not changing our guidance at this time.

However, make no mistake, we will see significant downward pressure on our margins during the second half relative to our original expectations.

The spike in commodity and energy costs, resulting from Russia's aggressions and Europe will cause our second half to look more like our first half.

That being said we are continuously taken aggressive actions to adjust to these inflationary pressures with price increases and our team continues to battle the part shortages.

In short we are presently targeting the low end of our guidance until we have a clearer picture of how the second half will play out.

If the theme of Manitowoc journey was transition in 2021 theme for 2022 is endurance.

<unk> has the ability to resist was saying and recover we remain resolute in pursuing our core breakthrough initiatives and we are laser focused on our cranes plus 50 target for non new machine sales growth.

In the grain industry, it's always a matter of time before the next cycle occurs. Unfortunately since our last conference call I have noticed a significant change in buyer confidence and it appears that this cycle may be quickly, peaking as a result of ongoing inflation and rising interest rates.

Given these market conditions, we will continue to be judicious in our management of working capital and liquidity.

There is however, a silver lining the installed base of cranes continues to age at some point in the not so distant future our industry will require a refresh. In addition after years of patients we have a U S infrastructure Bill percolating in the halls of government, while we await the inevitable Crane Renaissance Manitowoc will continue to see.

<unk> and its product offering and aftermarket focus both of which will fuel our long term growth and drive shareholder value.

With that operator, please open the lines for questions.

Thank you if you would like to signal with question. Please press star one.

One on your Touchtone telephone if you're joining us today using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment again, Please press star one.

I would like to signal with questions.

Our first question will come from Mig <unk> with Baird.

Good morning, Matt and good morning, Amit.

Good morning, and welcome.

Welcome to you all.

Okay.

I appreciate all the color you bet that you have given there is sort of a lawful Bruce Fleming.

From your prepared remarks.

But obviously the main takeaway here.

But there are cracks that you would note.

In the Crane market.

I'm wondering if we can go back to your comments on Europe , and North America and maybe.

Andy.

Bob.

Here.

I'm curious in Europe .

We are a function of what's happening in Ukraine staffing bolt on guidance.

And as you look at the North American market.

What is it that and that is driving this incremental softness you talked about orders in March and April maybe you can give us a little more context on that.

Post your price increases.

<unk> talked about.

Okay. So let's start with respect to the comments on guidance Thats purely driven by.

The European situation. So when we look at 2022 really from a tactical level in the next three quarters are challenges or cost driven in Europe . If you look in sort of general demand and overall customer confidence, it's really two different stories there.

With respect to situation Europe mid on the tower Crane side.

Virtually sold out so.

Given the uncertainty of what pricing and interest rates are going to be.

<unk> 2023, and even just just generally with the European environment, I think people are being conservative and pulling in the purse strings.

Mobile business is pretty similar same sort of situation.

In the U S. I think it's more granular where you can really look at it and say we see that the <unk>.

Our tea business is not improved at all for more oil prices are which normally that would be super strong.

Rates are very soft in that space and the boom truck World No one.

We can get class a trucks so.

It's just a roll back up again.

Again, it's how if you can't guarantee a lead time, you can effectively give a price and you know interest rates are going up it's tough for folks to get really aggressive in terms of.

What they are looking at the other thing I would say <unk> is in the U S. Because the dealer network that we have right now dealer inventories are in good shape, we feel good about them, but again part of our backlog is filling out the dealer channel in the next nine months. So I think some of that you sort of the combination of it you've got dealers looking at it saying Hey, we've got our orders in place were set for 2022.

Not ready to make real changes yet for 2023, and we've been limiting relative to what orders were willing to take for for.

For 2023.

So that's kind of what I'm trying to get at.

How much.

Of what Youre talking about its a function.

Maybe you limiting the order intake that youre willing to accept given all the uncertainty.

As opposed to other dynamics right.

You talked about the ballpark.

<unk> has gone up quite a bit and that is causing a significant issue for customers are we getting to the point, where these price increases are detrimental.

<unk> demand.

Yes, so theres so many things so many variables sort of crashing at the same time and the one another it's hard to pick one of them and say that thats the root cause of it but if I look at order rates through the first quarter and we did some price increases in the middle of the quarter to deal with the latest round of cost increases coming out of Europe that January we had really good orders and then all of a sudden it.

Really started to fall off February March and April and they've been pretty consistent.

The lower than the level, we have been.

So I do think that they are starting to see an impact of all all the price increases have an effect and that's really what I anticipate for the remainder of the year is that orders will be lower than when we got difficult comparisons when we look year over year in the second third and fourth quarter.

And I think we'll just start to eat some of our backlog will wait until we get more visibility on what 2023 is going to really look like.

Understood.

Squeeze one final one.

Going back to the supply chain right.

Certainly some some things seem to have gotten a little more challenging huambo input cost specifically.

<unk>.

But I'm curious in terms of availability where is it that youre still seeing part shortages.

Has anything changed from a couple of months ago.

Good question Paul.

Yes, I mean, the challenging part of it is still a game of whack a mole every day, it's something different.

Do think that the shortages have gotten more challenging during the first quarter than they were at the end last year.

The one thing that I'd add is that it's important to keep in mind that 35% of all the heavy plate steel in Europe was produced in Ukraine, and Russia before this crisis. So I would say that's the area that concerns me. The most is.

Whether it be the steel, it's coming from that region in the Europe or whether it would be the steel fabrication because there is.

I mean, theres a large Ukrainian population in Europe that was doing the welding in places like Poland, and Czech Republic, and they've gone back to Ukraine.

And then of course on the back of that you also have the energy issues, so steel fabrication and steel itself in Europe as well.

My biggest concern and of course in China, We've just got the the.

The backup at the ports.

In helping the situation. So yes, I don't think that the situation gets any easier.

But we've already we've always even going back to last quarter, we anticipated that the shortages would be.

Darn tough.

Understood. Thanks, Good luck guys.

Thank you.

Thank you and our next question will come from Jamie Cook with Credit Suisse.

Hi, good morning, Jamie.

Hello, I guess a couple of questions.

Again say January orders were strong and they fell off a cliff I think in February March April .

Can you put some.

Numbers around it like how big was January relative to the other three months.

So that would be helpful. What to what was sort of price cost in the quarter, which and what are you expecting now given some of the price increases that you put through.

Yeah.

During the quarter.

And then last can you just give me an update I know there were some shipments that were delayed last quarter was $50 million was supposed to get shipped I think in January and February just where are we on that and are there incremental delays there. Thanks.

You want to take the last question Guestroom, yes. So.

Looking at Q1, so yes, the stuff that fell from Q4 to Q1 got shipped but we add another shifting of the REIT.

You look at our working capital and you see that it's elevated and some of that was due to things shifting to the right. So <unk> was elevated because revenue got recognized later in the quarter and then inventory was up.

Let's say about $35 million fell out of the quarter to Q2, and we're continuing to see that slide as Aaron mentioned.

Sourcing issues that we've been having.

Yes, so with respect to the order rates I wouldn't necessarily say it fell off a cliff I mean January was as strong as what we've seen I mean, when youre clock and $500 million a quarter. That's that's a good clip for us when you think about what our deliveries have been in the last five six years I would say if I looked at it on a quarterly basis to try to take out some of the bumping us of it.

You look at our run rate, we're probably down 10% to 20% depending on the product line.

As I say, it's not as if it fell off a cliff and sometimes we do have a few of the slow months. My concern is just the normal.

Springtime orders normally March and April is a good indication with the full year is so when April slow may might be weak and then obviously when you're starting to get in the summer months and you know theyre going to be doing so.

With respect to your question on pricing, it's really tough to say when the pricing lands, especially because we have the part shortage challenges, which is moving when actual deliveries happened all over the map.

I think the easiest way to answer that question Jamie.

When we look at the full year, we've taken our guidance down from.

130 to 160 <unk> at the midpoint is 145 ish range.

We're targeting the low end of the range, we're looking at headwinds more costs of $15 million to $20 million in the second half, but a lot of I'd say its still sort of trying to guess at what it's going to be and what's going to come to us in the third and fourth quarter.

But yes, I mean, I think we were in good shape until the Ukrainian crisis hit in.

Now, let's really hit the reset button, particularly in Europe .

Okay. Thank you I appreciate the color.

Thanks, Jamie.

And our next question will come from Seth Weber with Wells Fargo.

Good morning, Seth.

Hi, guys. This is Larry King on for Seth Thanks for taking the question.

You maintained your revenue assumptions for 2022, but you are at the lower end, you said that kind of implies 16% growth.

Can you kind of elaborate on what your expectation for price versus volume or for the year.

I'm not sure I understood what your question relative specifically around price versus volume.

What are you what are your volume assumptions for for that 16% growth.

In terms of units.

Yes.

Not a number that we would share just because of the complexity.

Hi, Brian .

Yes.

Okay, and then do you have your $2 $5 billion revenue growth goal is that still a reasonable long term target.

Or are you kind of internally tempering that given where we are in the operating environment or is that still a long term aspirational goal.

Yes, I mean that gold doesn't change I mean, it's beyond my honest opinion the longer we are slower that just means the eventual rebound is going to be even bigger so I.

I think that's still very doable when you look at the overall crane market over the long term. It's just a question of when we get back into a more normalized basis, whether it be the inflation issues or the interest rate issues, but theres.

There is definitely a continuing.

Buildup of a refresh that's going to need to happen at some point on cranes.

Alright, Okay. Thank you guys appreciate it.

Thank you.

And our next question will come from Steven Fisher with UBS.

Good morning, Steve.

Good morning, guys.

So obviously a lot of talk about the <unk>.

And the confidence in the crane market.

I guess, maybe starting to flow through your orders I'm curious if that's flowing through the inquiries as well because.

It does seem like there are a number of larger projects in the works, particularly in the United States.

Re shoring manufacturing or infrastructure.

Infrastructure or even on the energy front and so while maybe your customers are a little bit hesitant to put in the orders now for 2023, I'm wondering how does that flow through the discussions on on what they might need should all of this activity start to really happen.

Yes inquiries have definitely dropped I mean, I think the biggest remark that I have on your comments, Steve or the fact that what we hear from a lot of customers as concerns around project delays. So I mean theres been these types of projects that folks are really struggling to get projects started whether it would be because of.

Getting raw materials or the raw material increases that they've seen and even getting the labor shortages I mean, one of the biggest challenges we see specifically in our in the crane market in the Crane, operator world as folks are struggling to get to.

Trained skilled train operators to run their cranes.

So that's my way of saying I think that it's great that there is an infrastructure bill out there, but we haven't really seen any movement off and letting some of that is because the folks can't get.

Going whether it be.

On the raw material side or the price or the people side.

So it could still be a timing factor, but in the meantime.

It's actually it's having a real impact of not generating orders it sounds like.

Yeah.

Okay, I think Thats fair.

And why do you think crane rental rates are stagnant or seeing a lot of pricing.

A lot of different.

Across both equipment rental and manufacturing so I guess.

To what extent does that.

Competition.

Or is it just new supply demand or why do you think the rental rates aren't or are they stagnant.

Well for sure I mean, we always look at the <unk> market is sort of an indicator for rental rates and there is.

There is no lack in there is very very I would say theres no activity. There is no activity in oil patch like you would expect in the last 20 years relative to where the oil prices are so.

I think that has a big effect over and Thats, what we mostly talk about onshore boom trucks are drifting up but.

I think people just struggled to understand some of it is that we've been locked into the projects that are out there. So.

Yes, I mean, I'm not sure what's going to finally turn the tide on the rental rates, but thats a never ending complaint that we hear from our customers.

Okay, and just lastly in terms of the margins in the second half of the year. Thank you.

Or answering an earlier question something about 15% to $20 million of additional costs in the second half does that should we just assume basically kind of take up 1% or so off of.

Kind of six.

8% margin in the <unk>.

First quarter on.

That might be what you're kind of running out for the second half.

Obviously, I'll, let Brian before Brian answered my comment is I just been staring at it from a dollar standpoint.

Yes.

The issues, we have and how we offset with price so that.

That's what the math says it probably doesn't make sense.

Yes, 2015, 2000, and say remember that Q3 tends to be our worst quarter because of the shutdowns normal shutdowns in Europe . So.

Second half.

Q4, we have generally been pretty strong so I think it's probably a little bit less than the numbers, you're talking about versus the $6 eight.

Got it thanks a lot.

Thanks, Dave.

And moving on to Tami Zakaria with JP Morgan.

Hi, Tim good morning.

Hi, how are you.

Next question.

Can you give us.

The top two or three challenged areas, you're seeing the supply chain today is it trade it.

Nick parts shortages is it locked down.

Mention take steel, but any specific examples.

That you could share with us.

Okay.

Yes.

I'd say all of the above.

Yes, I don't think its so simple to say that it's one thing or the other I mean, just sort of depends on what the issue of the day is.

I think China is going to be a bigger challenge, even as we get into the second half because.

I mean don't forget there is a lot of.

There are a lot of boats on the water. So we haven't really seen the worst of the worst yet coming from China I suspect as we look forward, that's going to be a real problem.

Admin I cringe every time I turn on TV, because you see a lot of activity in Ukraine around some of the steel mills that are there.

There are a.

There's a lot more still to come out in the Ukraine that anyone lending realizes definitely and I realize I mean those are the two pieces that worry me the most and just from a cost standpoint, the energy costs are definitely increasing in the second half due to the.

The Ukraine crisis, so that's another.

Yes.

If you get to scale and Tammy we could go for a while I think it's probably more than two or three in the morning.

Got it okay, So China CEO Anna <unk>.

The top areas of concern right now so on China.

Got it got it.

Remind us what your manufacturing in China like what what percent of your capacity is in China.

And are you still able to run the operation there and that the Lockdowns.

Okay.

Yes so.

China, there is sort of the double whammy, one is what we produce and what we would ship out of China.

I'd have to look at what it says in the 10-K or some some indication with our Asia Pac businesses, but I don't think I wouldn't say it's significant.

Relative to the overall I think the bigger challenge that could hurt US is just the supply chain. So that is the parts coming out of China and go into the factories, whether it be in North America, and Europe that probably could create.

Q1 2022 Manitowoc Company Inc Earnings Call

Request a DemoDemo

MTW

Manitowoc

Earnings